Council Tax – why not a premium for second homes?

In addition to the Government’s proposals to allow councils to charge full council tax on second homes, other Liberal Democrat MPs and I have tabled an amendment to the Local Government Finance Bill to give councils the discretion to introduce a Second Home Premium. Second home owners often ask why they should be ‘punished’ in this way just because they choose to spend their money on a second home or because they need a second home for work purposes. They may add, ‘we spend money in the area and we do not have the same call upon services as people with their main home in an area.’

The important point about the proposal is that it is discretionary and councils would be particularly interested in using this measure if there was a shortage of housing for local people. In my local area of Purbeck, for example, 7.3% of homes are second homes. This adds to demand, and supply is very limited because of heath land, the heritage coast and much more and therefore the premium could help moderate demand and/or produce extra revenue which could be used to tackle the shortage of housing.

Tim Farron MP, who co-signed the amendment, has highlighted the problem in South Lakeland, where there are 3000 people on the housing waiting list and over 3500 second homes. And Stephen Gilbert MP, another co-signatory, has raised the fact that there are 14,000 second homes in Cornwall and around 12,000 people on the waiting list for their first home.

In some areas there are very large concentrations of second homes in villages, and as a consequence the village starts to lose its facilities – bus services, and local shops and pubs. Again, there is a case for intervention if a local authority wishes.

There are practical problems with the implementation of such a policy but as Liberal Democrats, we want to generate a widespread debate around these issues – and this is party policy!

* Annette Brook is the Liberal Democrat MP for Dorset and North Poole.

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  • ……………… seems quite “green” to me to be concerned not to use up more than you absolutely need in the city and so on……….

    Sorry; you’ve lost me there….

  • I support this, but I do recognise the problem Jock identifies about how you know if a home is a second home. Is there an easy way of doing this that doesn’t constitute an illiberal intrusion into private life? Otherwise, do we risk two local authorities charging people for two second homes, because it can’t be proved where the first one is?

    @Jock – I’m quite impressed at your nerve to defend multiple home ownership in areas where thousands of people cannot afford a single home on the grounds that it is environmentally conscious. Perhaps the evidence would prove me wrong, but I am inclined to doubt that the vast majority of people with holiday homes have them in order to have a much smaller city property for environmental reasons.

  • A whole field full of strawmen!!

    1. It’s easy to find second home owners – they’re all claiming council tax reductions!

    2. Why should second home owners get tax-breaks for hoarding property? Before we get on to increasing taxes on second homes (beyond the level of full council tax), surely it would be fair to make second home-owners actually pay the same level of council tax as that other people pay on their only houses. Why do second home-owners need a(nother) tax break?

    3. The idea that using two houses (one of them a pied-a-terre in the city) frees up precious housing stock is the most absurd argument I’ve heard in my life. How exactly does using two houses rather than one free up housing stock!!!?????

  • I’m still trying to get my head around someone advocating LVT whilst at the same time defending tax-breaks for multiple home-owners!! Presumably your version of LVT, Jock, is regressive, with lower marginal rates of taxation for increased land-ownership?

  • I have a second home in Cornwall
    It was my family home and at some point i wishto retire there.
    I spend my money in local shops and support local tradesmen when i need
    work done and I spend a reasonable amount of time there during the year.
    What i do object to is second home owners trying to influence local people when they
    wish to get things done. If you are a second home owner stay out of local politics

  • Andrew Clark 31st Jan '12 - 11:04am

    Your suggestion on second homes makes more sense than a mansion tax that takes no account of the cost of upkeep of historic buildings

  • I live in a constituency with a very large and growing student population. More and more houses are being rented to students, who don’t pay council tax. Would this have any effect on those to cover the rising cost to councils of providing services to students? It needs to, somehow.

  • @Caracatus
    “All the talk of mansion tax and changing discounts etc are based on keeping Council Tax. But, we don’t want to keep council tax.”

    Getting rid of the council tax second home discount is (a) achievable and (b) a step towards LVT, which isn’t achievable at the moment.

  • @Duncan Scott
    “It may well be cheaper (i.e. more efficient) for the family to choose (b) rather than (a).”

    You’re not looking at the effect on everyone else of the family living in two houses rather than one!!!! Your only concern seems to be how cheap it is for the family, rather then the effects of such behaviour on everyone else.

    One of the biggest problems with housing in the UK is the inefficient allocation of existing housing stock. A family that uses two houses is making such an inefficient use (50% of the two houses is going to be empty at any one time – it is an economic fallacy to argue that their use of two houses is efficient). They would be less likely to do this if LVT were in place, given that those that bought property a while ago (or inherited a house bought a while ago) are currently paying virtually nothing to maintain their ownership, whilst new entrants to the market have to pay a fortune. More often than not, it is such inheritors (of good fortune from buying decades ago or directly through death of relatives, etc) that are able to own more than one property. This distorion would partially be rectified by LVT and the family would be able to afford to pay for a family house in the area of high demand, freeing up housing stock.

    FYI, the coalition are not abolishing the second home discount – they are giving the power to local authorities to abolish second home discounts. If you think this has anything to do with democracy, rather than central government trying to pass the buck by making someone else responsible for doing something that might be unpopular, then you’re welcome to your thoughts.

    It’s very easy to find out who owns what – HMRC, Land Registry, etc.

  • ……………….When it comes to housing there are high demand areas and low demand areas. There is a large family where the main breadwinner works in a high housing demand area. That family has 2 options:

    (a) the whole family lives in the high demand area.
    (b) they keep a studio flat in the high demand area and a family-sized property in the low demand area.

    .It may well be cheaper (i.e. more efficient) for the family to choose (b) rather than (a)………..

    Commuting, unless one lives in rural Wales/Scotland, seems rather cheaper. Fares aren’t quite that bad; YET.

  • I promise this is my last input on this – I don’t want to hog the discussion.

    A good way of thinking of LVT is that is that it hits those that use land the most inefficiently the hardest and therefore improves the use of land across the economy In the process, it would bring land prices down, as the artificial scarcity through hoarding is mitigated against. Such examples are second home-owners, who, unless they bought relatively recently, are often paying next-to-nothing to maintain their property and can benefit from the artificial scarcity they are creating through capital gains. LVT would prevent second-homeowners from hoarding inefficiently used houses and would incentivise them to sell up or let their property when they are not in it, which would mean lower demand for housing (lower rents & house prices) and a greater demand for local services – money would start chasing goods and services rather than asset price speculation.

    There would be far fewer people who are able to get away with having a small property near work and a larger house elsewhere. The amount of inefficieny this kind of thing causes to the economy is enormous, no to mention the pointless resource depletion created by such pointless commuting.

    It’s the little old lady living in the mansion next to the place of work that is a big part of the problem. If she sold up and moved into the former pied-a-terre, the family could buy her house and walk to work, she would be in more suitable accommodation for her needs (and would in the process release equity to pay for her retirement needs) and a family that works in the commuter town can buy a family house there without being out-competed by the city commuters. Everyone’s a winner. However, without proper taxation of land, the madness continues, with those who use big houses paying next to nothing whilst families work and commute like slaves in order to be able to afford to live in rabbit hutches.

  • In Dorset, wages are below the national average, while property prices are well above the national average. If you live in Purbeck, and earn, say, £20,000 per annum, where are you going to live? You could try social housing, but there isn’t very much of it. Private renting isn’t a terribly likely option, because a lot of this is aimed at the tourist market, and is rather pricy. Then you could try buying a (gulp) house. Go to Worth Matravers (actually served by a bus, believe it or not). More than half the properties in that village are second homes, and they don’t come cheap. Indeed, a quick search on Google reveals a 3-bed house on offer for a whopping £525,000 – more than a similar sized property in most parts of London! So, quarry workers, don’t even think about living anywhere close to where you work. Find a council house in Poole and add to the traffic congestion on the way into Wareham every morning. The people who cut the stone that these overpriced houses are built of cannot live anywhere near them. And for Purbeck, substitute more or less anywhere in the South and South-West (apart perhaps from Thanet and the Isle of Sheppey, where there are zero jobs).

    This issue has been live for decades, and has been discussed by this party in a hand-wringing fashion for just as long, but no-one is prepared to grasp the nettle, because all possible solutions hurt. Either we penalise people who under-occupy (for that is what owning a second home amounts to), or we invest heavily in social housing. The first solution will horrify the rich and their cheer-leaders, the “libertarians” – though government policy on social housing is to do just that. The second solution would do little for people on middle incomes.

    The “libertarians” have no viable solution, other than to invite the poor to jump off Beachy Head or live in Dale Farm.

  • Unless the second home tax was huge, it is hard to see this making any difference to the number of homes available in these areas.

  • Richard Swales 31st Jan '12 - 9:56pm

    The valid comparison isn’t between people struggling to get one place to live and people with the money for two – that is something we can deal with when setting the rates. The questions are,
    a) should a couple living alone in a 4-bed, half million pound house pay less than a couple owning two 2-bed houses worth a quarter of a million?
    b) Should it make a difference if they are married or not?

    The answer is probably no to both of those.

  • Tim Leunig,

    “Unless the second home tax was huge, it is hard to see this making any difference to the number of homes available in these areas.”

    I think you are right, Tim. As I hint above, it is unlikely that we are going to get very far in tackling this issue without doing something that is unacceptably draconian for Liberals.

    I will give you an example. A few years ago, someone (I forget who) seriously suggested that outsiders be banned from buying second homes on Exmoor. Now, Exmoor is a wonderful place, and if I had a million quid to spare I would probably buy property there myself. But it isn’t as wonderful for people who live there on low incomes (and there are a lot of them) because of the hideously high property prices. Ilfracombe, like many seaside towns, has high levels of social deprivation. Yet not that long ago the “Grauniad” ran a feature that openly encouraged its well-heeled readers to go and buy bargain property in that town. Imagine the impact on ordinary folk who live and work there (or try to)! My great grandfather, who was a chimney-sweep, lived in a three-bedroom house in Ilfracombe. That was in the 1910s. Today, he would be lucky to be able to afford the rent on a garden shed. A crash social housing building programme would help (provided acceptable sites were found). But that wouldn’t assist people on middle incomes, who would still be priced out by the rich.

    In 1989, the party ran a campaign entitled “Where will our children live?” Some may remember it. I do, because I received briefings and artwork from ALDC encouraging me to campaign on it. And I did. I was agent in a county division comprising about 30 villages, many of the “chocolate box” type. The people who made the biggest noise there lived in the thatched cottages and enclosure farmhouses. They had posh accents and resisted such things as street-lighting and anything that was conspicuously modern. And they usually got their way. The people in the council houses were trapped. If they wanted to improve themselves, they had to leave the area, because local property prices were wholly unaffordable. There was a fair bit of modern housing, too, but most of that was snapped up by middle-class people from the nearby town. Have we moved an inch closer to answering ALDC’s question? I’m not convinced we have.

  • Council Tax should be payable on any residential property with a roof on it, no exceptions, no loopholes, no discounts.
    a) if there is a need for a discount that should be part of the benefit system
    b) if you need a second home because you are working away from home, that is part of your decision to arrange your life that way, the taxpayer shouldn’t pay for it
    c) empty property is a waste of resources, we don’t want waste, we tax what we don’t want, simple.

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